BILL ANALYSIS Ó
SB 477
Page 1
Date of Hearing: July 6, 2011
ASSEMBLY COMMITTEE ON EDUCATION
Julia Brownley, Chair
SB 477 (Wright) - As Amended: June 22, 2011
SENATE VOTE : Vote not relevant
SUBJECT : Inglewood Unified School District: emergency loan
SUMMARY : Appropriates twelve million nine hundred thousand
dollars ($12,900,000) in General Fund as an emergency
apportionment (loan) for the Inglewood Unified School District
(IUSD), and requires the district to enter into a lease
financing agreement for the purpose of financing the emergency
apportionment in an unspecified amount. Specifically, this
bill :
1)States legislative intent to provide emergency appropriation
assistance to IUSD in line with current law, unless otherwise
specified.
2)Requires that the Superintendent of Public Instruction (SPI)
assume all rights, duties, and powers of the IUSD governing
board and appoint a state administrator, in consultation with
the county superintendent, and provides for the authority of
the SPI and the state administrator to continue until all of
the following occur:
a) After a minimum of one year, the state administrator and
the SPI determine that future compliance by the district
with recovery plans is probable.
b) The SPI has approved all of the required recovery plans,
and the County Office Fiscal Crisis and Management
Assistance Team (FCMAT) completes the improvement plans
required under current law and has completed at least two
annual reports on district progress in implementing the
improvement plans.
c) The state administrator certifies that collective
bargaining agreements have been ratified, consistent with
the recovery plans.
d) IUSD has completed all reports required by the SPI and
the state administrator.
e) The state administrator certifies that the members of
the school board and specified district personnel have
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successfully completed training required by this bill.
3)Authorizes the SPI to return power to the governing board for
each of the functions of financial management, pupil
achievement, personnel management, facilities management or
community relations, if performance under the recovery plan
for that area has been demonstrated to the satisfaction of the
SPI.
4)States legislative intent that, within the fiscal constraints
of the district, the SPI and the state administrator work with
the IUSD staff and governing board to bring about
comprehensive reform in the areas of pupil achievement,
attendance, dropout rates, parent involvement, teacher
quality, fiscal management and program evaluation, and report
these findings to the education committees of both houses of
the Legislature.
5)Specifies the duties, consistent with current law, of FCMAT
with respect to IUSD, provides that the district shall bear
100 percent of the costs associated with the activities of
FCMAT, and requires FCMAT's assistance to continue until IUSD
receives a positive interim certification or until all powers
are returned to the governing board.
6)Specifies that the required improvement plan for personnel
management includes, with all costs borne by IUSD, training
for:
a) Members of the governing board, including training in
their fiduciary responsibilities as board members and in
financial management practices; at a minimum this is
required to include governance training provided by the
California School Boards Association.
b) All personnel with management, policymaking or advisory
responsibilities, who report directly to the state
administrator, to ensure they have the knowledge and skills
to effectively administer their areas of responsibility.
7)Appropriates twelve million nine hundred thousand dollars
($12,900,000) from the General Fund to the SPI for
apportionment to IUSD as this emergency loan, and specifies
that the funds may be disbursed only if the state
administrator and FCMAT jointly determine that it is necessary
to support the immediate cash flow needs of the district.
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8)Requires that IUSD repay the emergency loan as a straight line
loan with a 20-year term and interest paid at a rate equal to
that earned on the state's Pooled Money Investment Account
(PMIA) on the enacted date of these provisions, authorizes the
district to repay this obligation on a faster repayment
schedule without prepayment penalty, and requires that
defaulted loan payments be repaid by an offset against
district apportionments taken by the State Controller (SCO).
9)Authorizes the Director of Finance (DOF) to amend the loan's
payment schedule if DOF concludes that the amendment is
warranted and is in the best interests of both the state and
the district; requires DOF to give 90-day notice to the Joint
Legislative Budget Committee in this event.
10)Requires IUSD to enter into a lease financing agreement with
the California Infrastructure and Economic Development Bank
(I-Bank) for the purpose of financing the emergency
apportionment, including repayment of the General Fund loan;
however, no limit is set for the amount of financing that the
district can pursue.
11)Authorizes the additional lease financing funds to be used
for reserves, capitalized interest, credit enhancements, and
costs of issuance, in addition to repaying the General Fund
loan. Also requires the I-Bank to issue bonds for this
purpose with a term of lease not to exceed 20 years, with the
possibility of a 10 year extension under specified
circumstances.
12)Requires the SCO, his or her designee, or an auditor selected
by the district and approved by the SCO conducts an audit of
the books and accounts of the district for the fiscal year in
which the emergency apportionments are disbursed and for each
fiscal year until the SCO and SPI determine that the district
is solvent; this audit is to be conducted in lieu of the
required annual school district audit.
13)Authorizes the district, between June 1, 2011 and June 30,
2014, to sell property owned by the district and use the
proceeds from the sale to reduce or retire the emergency loan,
and makes IUSD ineligible for financial hardship assistance
under the state's school facilities program from June 1, 2011
to June 30, 2016, inclusive.
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14)Clarifies that these provisions do not remove any statutory
or regulatory rights, duties, or obligations from the Los
Angeles County Superintendent of Schools (LACOE), who
maintains the responsibility to superintend school districts
in Los Angeles County.
EXISTING LAW :
1)Establishes a process for state oversight and financial
assistance for school districts in financial trouble.
2)Authorizes the governing board of a school district that
determines that its revenues are insufficient to meet its
current year obligations to request an emergency apportionment
(loan) from the state through the SPI.
3)Requires that acceptance of an emergency loan constitutes
agreement by the school district to specified conditions,
including the following:
a) The SPI assumes all the legal rights, duties, and powers
of the governing board of the district.
b) An audit, for the fiscal year in which the emergency
apportionments are disbursed and each year thereafter, is
to be conducted of the books and accounts of the district,
in lieu of the required annual school district; this audit
may be conducted by the SCO, his or her designee, or an
auditor selected by the district and approved by the SCO.
c) The SPI may appoint an administrator to act on behalf of
the SPI.
d) The school district governing board becomes advisory
only.
e) The authority of the SPI and the state-appointed
administrator continues until specified conditions have
been met, including SPI determination that future
compliance with recovery plans is probable.
4)Authorizes the West Contra Costa (formerly Richmond) Unified
School District (WCCUSD), Oakland Unified School District
(OUSD) and Vallejo City Unified School District (VCUSD) to
refinance existing General Fund (GF) emergency loans through
the California Infrastructure and Economic Development Bank
(I-Bank), with any difference between interest paid on the
existing GF loans and the costs of refinancing those loans,
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due to higher interest rates through the I-Bank, paid by the
state.
5)Authorizes an appropriation of five million dollars
($5,000,000) and authorizes lease revenue financing up to
thirteen million dollars ($13,000,000), plus expenses, as an
emergency loan for the King City Joint Union High School
District (KCJUHSD), and requires the SPI to assume all the
rights, duties, and powers of the governing board of the
district; this is the most recently approved emergency loan.
FISCAL EFFECT : Appropriates twelve million nine hundred
thousand dollars ($12,900,000) in General Fund to fund an
emergency loan; the loan would be repaid, with interest charged
at the rate earned on the state's Pooled Money Investment
Account, over a 20 year term.
COMMENTS : This bill is being heard for the purpose of amending
the bill to adopt an urgency clause only.
As a result of court decisions (see Butt v. State of California,
1992) placing the ultimate responsibility for ensuring the
equitable provision of public education to all pupils, including
those in financially failing school districts, and the resulting
early experiences with districts on the verge of insolvency, the
state developed a process for providing financial oversight to
school districts, and for providing financial assistance and
financial recovery to school districts in financial trouble.
This process is commonly referred to as the AB 1200 process - a
reference to the initial authorizing legislation, AB 1200
(Eastin), Chapter 1213, Statutes of 1991. The potential end
result of this process, the granting of an emergency loan to the
school district and the requirement that the district accept
accompanying conditions including assumption of control of the
district by the SPI and the completion of a SCO conducted audit,
has been reached in eight cases: KCJUHSD, VCUSD, OUSD, West
Fresno Elementary School District, Emery Unified School
District, Compton Unified School District, Coachella Valley
Unified School District, and WCCUSD. Six of those loans are
still outstanding. In many other cases the oversight, advice
and assistance provided by county offices of education and other
fiscal advisors under the AB 1200 process has been sufficient to
pull the school district out of immediate financial trouble and
to provide time for the governing board of the district to take
those actions necessary to begin a return to a more stable
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fiscal condition.
IUSD is located in Los Angeles County, and has a total
enrollment of approximately 14,400 pupils in 24 schools. More
than 57 percent of the district's enrollment is Hispanic, and
approximately 40 percent is African American; 30 percent of the
district's pupils are English Learners. The district has a 2009
base Academic Performance Index (API) of 688; the district's
schools had 2009 base APIs that ranged from 589 to 864, with
statewide rankings from Decile 1 to Decile 9.
IUSD has faces fiscal distress at this point in time and has
done so in the past. During the 1995-96 and 1996-97 fiscal
years, and again during the second half of 2001-02, IUSD
received a qualified certification on its interim financial
reports. Current law requires school districts to file two
interim financial reports during each fiscal year; these reports
provide for a self-assessment of the status of the district's
financial health over a three-year time horizon. The first
interim report is due December 15 for the period ending October
31, while the second interim report is due March 17 for the
period ending January 31. This self-assessment results in a
certification of whether or not the district is able to meet its
financial obligations. Each district is assigned a
certification that is classified as positive, qualified, or
negative. A positive certification is assigned to an LEA that
will meet its financial obligations for the current and two
subsequent fiscal years; a qualified certification is assigned
when the LEA may not meet its financial obligations for the
current or two subsequent fiscal years; and a negative
certification is assigned when a LEA will be unable to meet its
financial obligations for the remainder of the current year or
for the subsequent fiscal year. Qualified or negative
certification results in various forms of additional oversight
or interventions on the part of the county superintendent or
SPI, including assigning external consultants, requiring a
district fiscal recovery plan, or even disallowing certain
expenditures through a stay and rescind of governing board
actions. IUSD returned to a qualified certification again in
the second half of 2008-09 and throughout 2009-10, and has
received a negative certification at both the first and second
interim report in 2010-11.
IUSD has experienced declining enrollment for several years,
experiencing nearly a 20 percent drop in enrollment over the
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last eight years from a high of 17,969 students in 2003-04, to a
low of 14,442 students in 2009-10. Coupled with a reduction in
state funding over the last three years, this has placed the
district in a difficult financial position. Inglewood Unified
is similar to many districts throughout the state in that is has
been unable to reduce expenditures commensurate with the decline
in funding and enrollment.
As part of the AB 1200 process a number of entities have begun
advising the district and reviewing the district's financial
status over the last two years. LACOE has primary oversight
responsibilities and has also brought in VDT, an accounting firm
with experience in school districts, as a fiscal expert to
assist the district with a fiscal recovery plan and prepare
required multi-year financial projections. FCMAT has been
engaged in the district providing analyses and recommendations
on budget, cash flow projections and other financial
projections; and the California Department of Education (CDE)
has been actively tracking the district as part of its overall
responsibilities relative to AB 1200.
Despite the IUSD governing board making $24 million in cuts, of
which $20 million are from the unrestricted budget, over the
last year, the district still faces both cash flow and longer
term budget issues in this fiscal year. It is clear from the
fiscal experts engaged in the district, including LACOE, FCMAT
and CDE, that IUSD will reach a point during the coming fiscal
year, very likely as early as October/November of this year,
where an emergency apportionment from the state is necessary to
continue to make the district a going concern. At this point,
however, it is premature to specify an exact dollar amount for
that emergency apportionment, but it does appear that the
district, consistent with the districts that have taken this
path in the past, will have both short-term cash needs and
longer term budgetary needs. Since this need will likely occur
at some point prior to January 1, 2012, it is necessary that
this bill be amended to adopt an urgency clause.
Committee amendments: Committee staff recommends that the
Committee amend the bill to adopt the necessary urgency clause,
and re-refer the bill to the Committee on Education.
Previous legislation: SB 130 (Denham), Chapter 20, Statutes of
2009, appropriated five million dollars ($5,000,000) and
authorized lease financing through the I-Bank of up to thirteen
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million dollars ($13,000,000), plus expenses, as an emergency
loan for the King City Joint Union High School District, and
requires the SPI to assume all the rights, duties, and powers of
the governing board of the district; this is the most recently
approved emergency loan. The table below shows previous
legislation providing emergency loans. AB 1554 (Keene), Chapter
263, Statutes of 2004, requires that existing emergency loans
for the West Contra Costa USD, Oakland USD and Vallejo City USD
be refinanced through the I-Bank, with any difference between
interest paid on the existing loans and the costs of refinancing
those loans paid by the state. AB 1303 (Daucher), Chapter 97,
Statutes of 2005, revises statutes and terms pertaining to the
lease financing that the state is using to replace General Fund
financing of school district emergency loans. AB 1495 (Peace),
Chapter 94, Statutes of 1994, also known as the Bergeson-Peace
Infrastructure and Economic Development Bank Act, created the
I-Bank. AB 1200 (Eastin), Chapter 1213, Statutes of 1991,
established the AB 1200 process for fiscal oversight of school
districts.
REGISTERED SUPPORT / OPPOSITION :
Support
California Teachers Association
Inglewood Teachers Association
Opposition
None on file
Analysis Prepared by : Gerald Shelton / ED. / (916) 319-2087